Nobuhiko Ito, head of acquisition finance and syndicated lending at Citigroup in the capital, and Masahiko Horiba, an executive director in GE Capital's structured finance unit, both said last month they are stepping down. Outstanding loans by foreign banks dropped to a record low 1.846 trillion yen (US$15.7 billion) in November as borrowing costs slump, Bank of Japan data going back to 1995 show.

Stricter financial rules are forcing foreign banks to be more picky about the risk of assets they take on including loans, according to Bank of America Corp. Japan's interest rates on new loans fell to an unprecedented 0.767 per cent last year as the BOJ accelerated monetary stimulus, squeezing profits on financings in Asia's second-largest economy.

"The big reason that foreign bank loans are decreasing is that it doesn't pay to expand their balance sheets here when they can make much more money in other countries," said Yusuke Ueda, a credit analyst at Bank of America Merrill Lynch in Tokyo. "They can get better returns than Japan just by going to the money market or corporate bond market in the US."

The average gap between loan rates and funding costs in Japan was 0.14 per cent in the year ended March 2014, matching the least on record, according to data from the Japanese Bankers Association. That compared with an average net interest margin of 3.14 per cent in the US in the third quarter of 2014, according to the Federal Deposit Insurance Corp.

Japanese Banks Lending by foreign banks is falling even as Japanese counterparts are boosting activity. Domestic firms' loans to companies came to 287.4 trillion yen in December, the most since March 2009, according to BOJ data.

Syndicated loans, which are a major business area for overseas firms, dropped 19 per cent to 25.2 trillion yen in 2014, according to Japanese Bankers Association data.

"Increased competition as companies choose to raise money via corporate bonds and stagnant demand for funds among large companies" are weighing on syndicated lending, according to Satoshi Oda, the head of the syndication department at Credit Agricole SA in Tokyo.

Citigroup spokesmen weren't immediately available to comment. A spokesman at GE Capital in Tokyo, who refused to be named, declined to comment.

Encouraging Japanese companies to sell notes are falling borrowing costs. Average corporate debt yields decreased to a record low 0.2572 per cent in January, according to Bank of America Merrill Lynch data. That compared with 3 per cent for US company bonds.

SoftBank Corp took out a 1.98 trillion yen syndicated loan in 2013 to refinance debt from its purchase of Sprint Corp. Excluding that deal, such lending has decreased every year since 2009, according to figures from the Japanese Bankers Association.

BOJ Governor Haruhiko Kuroda's board expanded already- unprecedented monetary stimulus in October, increasing sovereign note purchases to as much as 12 trillion yen a month to fuel inflation. The benchmark 10-year debt yield dropped to a record-low 0.195 per cent last month and was at 0.355 per cent on Monday. The yen has weakened about 14 per cent in the past year and traded at 117.32 per dollar at 5:11pm in Tokyo.

"Foreign banks can't raise funds as cheaply as Japanese banks," said Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo. "The incentive for foreign banks to lend in Japan is decreasing because of falling interest rates."